Vitalik, co-founder of Ethereum, saw someone mention that Bill Gates and the stock god Warren Buffett had reduced their holdings in Microsoft and diversified their investments, resulting in a significant reduction in their assets. Based on this example, Vitalik advised against diversifying investments. However, does Warren Buffett really support diversified investment portfolios?
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Does Buffett support diversified investment portfolios?
No one can beat the market in Warren Buffett’s ten-year bet
Vitalik’s investment advice
Warren Buffett and Charlie Munger at the 1996 Berkshire Hathaway shareholders meeting
discussed diversified investment portfolios, during which Buffett mentioned:
Diversification is meaningless for anyone who knows what they are doing. Diversifying a portfolio is “protection against ignorance.”
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Buffett mentioned that if you know how to analyze companies and evaluate their value, owning 50, 40, or even 30 stocks may be crazy because there may not be that many outstanding companies that one person can understand.
Buffett believes that as long as you have three outstanding businesses, it is enough to earn good returns in your lifetime, provided that you have enough understanding and can ensure that bad things will not happen to these three companies. In this way, the performance of these three excellent companies will surpass that of 100 ordinary companies.
From the above discussion, we can conclude that if you have profound skills and sufficient understanding of the companies you are investing in, you do not need a large number of diversified investment portfolios. Instead, you can focus on a few specialized companies and achieve good investment returns. In fact, 78% of Berkshire Hathaway’s stock portfolio is concentrated in 5 companies, currently focusing on Apple (AAPL-US), Bank of America (BAC-US), American Express (AXP-US), Coca-Cola (KO-US), and Chevron (CVX-US).
However, for ordinary investors, Buffett highly recommends investing in broad market ETFs. In 2007, he initiated a decade-long bet, believing that no fund could outperform the market in the long run. Only one person, Ted Seides, a partner at Protégé Partners, came forward to challenge him.
In the end, Buffett designated an S&P 500 ETF that achieved a return of 125.8%, far surpassing Ted Seides’ 36.3% (from his selected 5 hedge funds).
Buffett has repeatedly stated in shareholder letters:
For non-professional investors, the best investment target is low-cost index funds.
Vitalik, co-founder of Ethereum, also supports diversified investments and provides the following financial advice:
Save enough to cover several years of expenses. Financial stability equals freedom.
Do not overly focus on investment portfolios.
Avoid investing with leverage of over two times.
It seems that Vitalik is also a conservative investor!
Vitalik
Buffett
Further reading:
Calling for the Return of Cypherpunks! Vitalik’s Ideal Social Model of Blockchain and Ethereum, Integrating Speculation and Development
OP will move towards Phase 2 of Layer 2, aligning with Vitalik’s decentralized roadmap